Consumer credit up $10.8 billion in July

Incentives, low rates fuel buying

WASHINGTON — Americans, taking advantage of free-financing offers and other incentives, increased their borrowing in July by the largest percentage in eight months.

The Federal Reserve reported Monday that consumer credit rose by a seasonally adjusted $10.8 billion in July from the previous month, increasing at a 7.6 percent annual rate.

The increase, in line with economists' forecasts, was the biggest since a 7.6 percent jump in November and left consumer borrowing at $1.72 trillion.

In June, consumers increased their borrowing by $8.9 billion, a growth rate of 6.2 percent, according to revised figures. That was stronger than the Fed previously reported.

Free-financing deals and low interest rates have motivated consumers to spend and help the economic recovery, economists said. Rising home values and extra cash from the refinancing boom also are supporting consumer spending, helping to offset negative factors that include a turbulent stock market and eroding consumer confidence.

"As long as free financing, discounting and other incentives continue, we can expect to see consumers ringing up those cash registers and borrowing briskly," said Richard Yamarone, economist with Argus Research Corp. "Apparently, the loan pillar of strength for the economy--the consumer--is not cracking."

In July, demand for revolving credit, such as credit cards, rose by $6.5 billion, or at a brisk annual rate of 10.8 percent. That followed a $3.5 billion increase, or a growth rate of 6 percent, in June.

For non-revolving credit, which includes new cars and vacations, demand grew by $4.4 billion in July, or at an annual rate of 5.3 percent. That compared with a $5.3 billion increase, or a 6.4 percent growth rate, in June.

The gain in non-revolving debt had been expected, given low-interest financing deals offered by carmakers to clear their lots. According to the Fed, the average interest rate for new car loans slipped to 3.5 percent in July, the lowest since 3.31 percent in December 2001.

The increase in revolving debt, however, was something of a surprise. While measures of consumer confidence slipped over the summer, hurt by corporate accounting scandals and a plunge in the stock market, economists said the increase in revolving debt showed a more steadfast outlook as consumers remained confident enough to continue adding debt.